The insurance industry has traditionally been dominated by brokers, agents, and manual, paper-driven processes that are inefficient and unresponsive to consumer needs. These processes also leave little room for insurance product customization and more often than not are associated with tiresome underwriting procedures. Episodic insurance, also known as on-demand insurance, is insurance coverage that is turned on and off as consumers require it.
Understanding episodic insurance
With digitization revolutionizing similarly archaic sectors such as real estate and banking, consumers now expect the insurance industry to follow suit by offering on-demand insurance coverage that is both seamless and convenient to obtain.
Insurtech companies have responded to the call for on-demand insurance by utilizing a range of technologies including the Internet of Things (IoT), blockchain, mobile sensors, artificial intelligence, and other interactive processes.
Episodic insurance is just one aspect of this new era, enabling consumers to purchase insurance cover on their smartphones as and when it is required without interacting with a broker or company representative. In general, there are no long-term contracts, and premiums are paid for within the app. Claims, on the other hand, are handled in a mobile chat interface.
Episodic insurance characteristics
Fundamentally speaking, episodic insurance companies must provide a seamless customer experience while also making rapid and accurate risk assessments.
This dual ability requires capabilities such as:
- Multi-channel data collection – insurers must collect data from IoT devices and connected technologies such as telematics, smartphone sensors, and wearables. Detailed data on insurance coverage duration and risk is then used to determine the premium that should be charged. For example, the premium a drone pilot is charged may depend on how fast or high they tend to fly their drone.
- Continuous data analytics – on occasion, episodic insurance will require continuous underwriting as the risk profile of the coverage changes. One example is usage-based vehicle insurance, where premiums are determined by driving behavior and how many miles are driven over a set period.
- Customer-centric product design – traditional insurance companies have a tendency to be inflexible and insure consumers in areas they didn’t request. Episodic insurance, on the other hand, covers consumers for exactly what they need and nothing more.
Episodic insurance types
While episodic insurance is a relatively recent development, several types are already being utilized. These include:
- Continuous underwriting – where the risk profile of the individual, business, or asset being insured is constantly updated. As noted earlier, this has been made possible by advances in IoT devices.
- Sharing economy insurance – this form of episodic insurance covers the risks and liabilities that are specific to an asset that is shared. Companies such as Airbnb (homes), Lyft (rides), and Task Rabbit (skills) are prime examples.
- Microinsurance – which is intended to cover smaller or time-specific events and occasions. Many examples of microinsurance predate episodic insurance as we understand it today. Travel insurance is one example, where a traveler protects against theft or sickness over the course of their vacation. Coverage for a one-time rental of expensive assets is another example, such as a wedding photographer taking out cover for the use of a high-value lens for the weekend.
- Episodic insurance, also known as on-demand insurance, is insurance coverage that is turned on and off as consumers require it. Like other industries with traditional and archaic practices, the insurance industry has been made more efficient by IoT devices and artificial intelligence.
- Episodic insurance characteristics include multi-channel data collection, continuous data analytics, and customer-centric product design.
- Episodic insurance is a relative newcomer to the insurance industry. Three types have started to emerge: continuous underwriting, sharing economy insurance, and microinsurance.
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